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Laws & Regulations - TITLE 10 CALIFORNIA CODE OF REGULATIONS
"The provisions of the California Code of Regulations provided herein are provided solely for the convenience of our members and are not to be used in lieu of the official version of the California Code of Regulations, or to otherwise provide legal advice."

Article 4. Surplus Lines
LICENSEES OTHER THAN SURPLUS LINE BROKERS

  2131 Misrepresentation by Licensee to Surplus Line Broker

Any person licensed by the Insurance Commissioner who misrepresents, to any surplus line broker, any material fact regarding insurance coverage, or misrepresents to such surplus line broker facts with regard to the rules of submission or rates, or in any way conspires to procure nonadmitted insurance in violation of the law or of the basic principles herein set forth, will subject himself to action in respect to his license as provided by Section 1731 of the Insurance Code. (Ins. C. 1760.5.)  This rule relating to other licensees shall not relieve the surplus line broker of his duty under the law.
NOTE: 2131 to 2172, inclusive, issued under authority contained in Section 1763, Insurance Code. The source of 2050 to 2324, inclusive, is the Rules and Regulations, Insurance Commissioner.

BASIC PRINCIPLES

  2132 Preference to Admitted Insurers; Collection of Tax

All questions involving violation or alleged violation of the Surplus Line Brokers' Act, Chapter 6, Part 2, Division 1, Insurance Code, hereinafter referred to as the "Act," will be viewed by the commissioner upon the basis of whether or not as to each such question there has been any violation of the following basic principles:
  1. The Act is designed to grant a preference to insurers admitted to do business in this State, with the specific exceptions contained therein, and insurance coverage may not be solicited for, or contracts of insurance placed with, any nonadmitted insurer, unless and until such coverage is not procurable from a majority of the admitted insurers holding certificates of authority to transact the class or classes of insurance involved in such insurance contracts.
  2. The Act is designed only to provide a medium through which citizens of this State may obtain from nonadmitted insurers coverage not readily procurable from admitted insurers.
  3. The Act requires the collection of a tax upon premiums for insurance placed with nonadmitted insurers.
The above basic principles shall govern in all matters relating to the act. General and specific rules are hereinafter incorporated for the purpose of facilitating the application of the basic principles, and are not to be used for the purpose of avoiding or defeating these basic principles.

SUBMISSION RULES

  2133 Submission to Admitted Insurers: "Class" Defined

Submission to admitted insurers is always required except as hereinafter expressly otherwise stated.  Forms of Coverage. ("Class" means the classes enumerated and defined in Sections 100 to 120, inclusive, of the Insurance Code).

  2134 Not Unprocurable if Admitted Insurer Cannot Lawfully Issue

No insurance will be deemed unprocurable from a majority of admitted insurers, and therefore eligible for placing with nonadmitted insurers, if the proposed form of contract cannot lawfully be issued by an admitted insurer.

  2135 Not Unprocurable If Combination of Classes Not Authorized

The refusal of admitted insurers to write a form of contract is not a basis for the contention that such insurance is not procurable from a majority of admitted insurers, if the form of contract involves a combination of classes of insurance which cannot lawfully be combined in a single certificate of authority to one admitted insurer. In such case separate forms of contract, each incorporating a class or a lawful combination of classes, must be offered to and refused by a majority of insurers admitted for each such class or combination of classes, before such insurance can be placed with nonadmitted insurers.

  2136 Artificial Division of Coverage Prohibited

Artificial divisions of coverage in one class or in any form of coverage under one class, into two or more proposed contracts, for the purpose of rendering a portion of the coverage unacceptable to a majority of insurers admitted for that class, or for the purpose of obtaining a rate advantage upon the entire risk, is prohibited where the entire coverage sought in that class or form would be acceptable as a single contract to such majority of admitted insurers.

  2137 Refusal by Admitted Insurers to Write Lawful Coverage by Mutual Agreement

The refusal of a majority of admitted insurers to write a lawful form of coverage offered them, solely upon the basis of mutual agreement so not to write, where such form of coverage can be demonstrated to be proper and necessary to the protection of the citizen (and not prohibited by law), will permit the surplus line broker to write such coverage in nonadmitted insurers upon such refusal. A test of good faith of the surplus line broker in each such transaction will be a comparison of the rate or premium involved. Compliance with filing requirements of Section 1763 of the Insurance Code will be enforced.

  2138 Rejection of Part of Class by Admitted Insurers

Where one portion of insurance in one class is acceptable to admitted insurers, but another portion in the same class is not acceptable, then if it can be shown that nonadmitted insurers will accept the entire coverage but not the rejected portion alone, the entire coverage in that class may be placed with nonadmitted insurers after approval by the commissioner.

RATES FOR COVERAGE

  2139 Offered at Specified Rate: Filing with Commissioner

No form of coverage offered to admitted insurers upon the basis of a specified rate or premium will be considered eligible for nonadmitted writing, unless filed with the commissioner, subject to the provisions of Section 1763 of the Insurance Code.

  2140 Use of Broker's License for Rate Competition

The use of a surplus line broker's license for the sole purpose of premium or rate competition with admitted insurers is prohibited. The commissioner is of the opinion, however, that the act does not contemplate the forcing by admitted insurers of unreasonable or arbitrary rates upon the insuring public.

RULES COVERING SPECIFIC POLICY FORMS HERETOFORE SUBMITTED TO THE COMMISSIONER

  2141 Life Insurance

(Ins. C. 101.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

  2142 Fire Insurance

(Ins. C. 102.) Attention is directed to the law prohibiting the use of any form other than the California Standard Form Fire Insurance Policy. (Ins. C. 2070.) This applies to both primary and excess fire insurance.

  2143 Earthquake Insurance

First loss (primary) earthquake insurance may be procured from nonadmitted insurers. If at least one of the following elements is present, such insurance may be procured from such insurers without restriction as to rates:
  1. The deductible is at least 25 percent less than the following:
    1. For dwellings of Class D (one to four dwellings) Construction (including farm dwellings) and the contents thereof.
      One-half of I percent of the value of the property insured or $250, whichever is the higher.
    2. For all other buildings of Class I to VI Construction (wood frame, stucco, steel frame or steel and re- enforced concrete) and the contents thereof.
      One-half of 1 percent of the value of the property insured or $ 1,000, whichever is the higher.
    3. For buildings of Classes VIIa and VIIb (ordinary brick building not reinforced) Construction and the contents thereof.
      Two percent of the value of the property insured or $2,000, whichever is the higher.
    4. For buildings of Classes VIIIa and VIIIb (hollow tile or hollow concrete block) Construction and the contents thereof
      Five percent of the value of the property insured or $3,000, whichever is the higher.
  2. The average or co-insurance clause is not required, or if required, requires insurance in an amount equal to a percentage of the value of the following percent value of property insured which is less than the following percentages thereof:
    1. Construction Classes I to VI ................ 3%
    2. Construction Classes VIIa and VIIb .......... 6%
    3. Construction Classes VIIa and VIIb .......... 9%
  3. The policy covers two or more subjects of insurance and does not include a distribution clause.
  4. The placement of the coverage is not contingent upon the placing of fire insurance covering the same property. If at least one of the above elements is not present, then the procuring of such insurance from nonadmitted insurers must be in conformity with the general rules and basic principles as set forth in this article.
NOTE: Authority cited: Section 1763, Insurance Code.

HISTORY

1. Amendment filed 10-13-54; designated effective 11-15-54 (Register 54, No.22).

  2144 Riot, Strike, Civil Commotion and Malicious Damage

The noncancellable feature of policies of this form constitutes a material advantage to the insured not now procurable from admitted insurers. Such noncancellable insurance, but not cancellable insurance, is therefore exempt until further notice from the submission rules.

  2145 Depreciation Insurance

Until admitted insurers provide a market for depreciation insurance, such insurance may be procured from nonadmitted insurers, exempt until further notice from the submission rules. Coverage offered must not in any way encroach upon primary fire insurance.

  2146 Collapse Insurance

Until admitted insurers provide a market for collapse insurance, such insurance may be procured from nonadmitted insurers, exempt until further notice from the submission rules. Coverage submitted or written must specifically exclude all loss or damage arising from earthquake or fire. Earthquake or fire insurance may be placed with nonadmitted insurers only under the rules applicable to each.  Marine Insurance (Ins. C. 103.) (Classification includes inland marine insurance.)

  2147 (a) Furriers Block Policy

This form has been submitted for a ruling as to whether or not the same is permissible for nonadmitted insurers. The request for ruling is based upon a form similar to the Jewelers Block Form but covering furs, namely covering not only merchandise in stock at the assured's permanent location or locations, but outside risk of the insured against fire and supplementary lines, burglary and other hazards. Unlike the Jewelers Block Form Section 103 of the Insurance Code does not authorize issuance of such policies covering furs as marine insurance.
Forms in nonadmitted insurers covering all hazards of the Furriers Block Policy but specifically excepting fire and supplemental coverages attaching to assured's merchandise at assured's permanent location or locations are permissible for writing in nonadmitted insurers subject to the submission rules.
It will be understood that the rates applying to the several burglary coverages of the Block policy will be not less than those quoted by admitted insurers.

  2148 Negative Film Floater

This form may be placed with nonadmitted insurers subject to the general rules and basic principles. Present forms submitted to the Commissioner as being those in use by nonadmitted insurers do not, in my opinion, offer substantial difference in coverage.

  2149 Other Forms of Inland Marine

All other forms of Inland Marine Insurance must be submitted in conformity with the general rules and basic principles.

  2150 Title Insurance

(Ins. C. 104.) No forms of policies having been submitted, the writing of non-admitted insurance must be in conformity with the general rules and basic principles.

  2151 Surety Insurance

(Ins. C. 105.) (Attention is directed to the Code definition which includes Fidelity Insurance and Bankers, Brokers and Commercial Blanket Bonds.)

No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles. Compliance with filing requirements of Section 1763 of the Insurance Code will be enforced.

  2152 Disability

(Ins. C. 106.) No forms have been submitted, but it has been brought to the notice of the Commissioner that risks involving "special hazards" can not be placed in admitted markets. All risks involving "special hazards" may be placed with nonadmitted insurers subject to the general rules and basic principles.

2153 Plate Glass

(Ins. C. 107.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

  2154 Liability

(Ins. C. 108.) (It should be noted that the code definition of Liability Insurance includes "insurance against loss resulting from liability for damage to property or property interests of others, but does not include workmen's compensation, common carrier liability, boiler and machinery or team and vehicle insurance.")

  2155

The question has been submitted as to the propriety of dividing liability lines into:
    1. Primary coverage and
    2. Excess coverage for submission purposes, and the Commissioner has been asked to rule whether such division would be considered a violation of the artificial division rule.
  1. Unless the excess coverage upon any risk is written in nonadmitted insurers at a rate or premium comparable with that regularly chargeable for the excess portion by the primary carrier on such risk, the division of such risk into primary and excess will be considered a violation of the artificial division rule, subject to the following exceptions:
    1. Excess insurance written by nonadmitted insurers in excess of a net retention of risk by the assured.
    2. Excess insurance written by nonadmitted insurers because of a refusal in writing by the primary admitted insurer to assume the limits of liability desired by the assured.
    3. Excess insurance written by nonadmitted insurers because of a written demand by the assured that the entire liability be not placed with one insurer, such request to set forth specifically the assured's reason therefore.*

2156

All excess insurance shall be subject to the general rules and basic principles, and is available for nonadmitted insurers only upon a majority refusal by admitted insurers.*

  2157

Special situations arising in connection with coverages such as Hospital Malpractice Liability and Hospital Liability for the same risk will be governed by Section 2138.*

  2158 Workmen's Compensation

(Ins. C. 109.) By virtue of the Attorney General's opinion under date of July 26, 1948, the writing of excess aggregate (stop loss) and excess catastrophe (straight excess) was declared to be subject to the minimum rating law (Ins. C. 11730 to 11742), and the policy approval law. (Ins. C. 11650 to 11662)*

  2159 Common Carrier Liability

(Ins. C. 110.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.
  1. Questions of
    1. Primary coverage and
    2. Excess coverage are subject to the same rules and regulations as defined under Liability, Section 2155.
  2. Reference is made to Section 1760.5 of the Insurance Code, subparagraphs (b), (c) and (d) which remove from the operations of the Act, insurance for certain common carriers such as steamships, railroads and aircraft (other than public liability hazards).*
_________
*For statutory and source citation, see note to 2131.

2160 Boiler and Machinery

(Ins. C. I 11.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles. Questions of
  1. Primary coverage and
  2. Excess coverage
are subject to the same rules and regulations as defined under Liability, Section 2155.*

 2161 Burglary

(Ins. C. 112.) "Form G" burglary policy issued by Lloyds, London, has been submitted. The questions raised are under two heads:
  1. rate and co-insurance;
  2. extension of coverage to "premises" instead of "within the residence" as appearing in forms of admitted insurers, and to personal effects in hotels.
  1. As to question (1), rate and co-insurance: Until admitted insurers recognize the apparent reasonableness of a substantial reduction in rate per unit of coverage upon application of the 100% co-insurance clause, it is hereby ruled that refusal of a majority of admitted insurers to accept upon the basis of 100% co-insurance, with reasonable rate allowance therefore, maybe considered a refusal to write, and permits the surplus line broker to place coverage with a nonadmitted insurer.
  2. As to question (2) extension of coverage to "premises" instead of "within the residence," it is ruled that the insured is entitled to procure coverage on property located on the "premises" and if such coverage is not procurable from a majority of admitted insurers, an offering upon the basis of inclusion of such coverage will be considered sufficient to comply with the submission rules. As to coverage in hotels or away from the premises, this ruling will not apply; inasmuch as a majority of admitted insurers are writing tourist floater or traveler's policies.

2162 Same: Other Forms

All other forms of burglary insurance must be written in conformity with the general rules and basic principles.

2163 Credit Insurance

(Ins. C. 113.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

  2164 Sprinkler

(Ins. C. 114.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

  2165 Team and Vehicle

(Ins. C. 115.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic regulations. Questions of (a) primary coverage and (b) excess coverage are subject to the same rules and regulations as defined under Liability, Section 2155.

  2166 Automobile

(Ins. C. 116.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles. Questions of (a) primary coverage and (b) excess coverage are subject to the same rules and regulations as defined under Liability, Section 2155.

  2167 Mortgage Insurance

(Ins. C. 117.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.
_______
*For statutory and source citations, see note to 2131.

  2168 Aircraft Insurance

(Ins. C. 118.) Excluded operation under the Act.
The Code definition of aircraft insurance specifically excludes insurance against "loss resulting from accident or physical injury, fatal or nonfatal, to any natural person."

  2169 Land Value

(Ins. C. 119.) This section of the Insurance Code repealed and Land Value insurance prohibited.

  2170 Miscellaneous

(Ins. C. 120.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

  2171 Third Party Property Damage Insurance

This rule refers to that form of coverage which is not necessarily confined to one class of insurance but deals with hazards under the general heading of third party property damage.
Recognizing the restrictions of the present market, it is suggested that such amount of such insurance as can readily be placed with admitted insurers be offered to such admitted insurers.

  2171.1 Notice to Insureds

On and after October 1, 1972, every certificate, policy, contract, cover note, or other evidence of insurance delivered or issued for delivery in California by a Surplus Line Broker shall contain prominently displayed on the face page thereof by means of a sticker, an imprint, or in some other manner the following statement:
This insurance is issued pursuant to the California Insurance Code,
Sections 1760 through 1780, and is placed in an insurer or insurers
not holding a Certificate of Authority from or regulated by the
California Insurance Commissioner.
On or before October 1, 1972, every Surplus Line Broker licensed by the Insurance Commissioner to transact surplus line insurance business in California shall report to the office of The Surplus Line Association its selected manner of compliance with the above-required notice.

NOTE: Authority cited: Section 1763, Insurance Code.

HISTORY

1. New section filed 7-19-72; effective thirtieth day thereafter (Register 72, No.30).

  2172 Filing Rules

  1. On and after December 1, 1938, the Insurance Commissioner will excuse all surplus line risks from the filing requirement if the same are filed with the Stamping Office of the Surplus Line Association, with the exception of those risks filed with him through the Stamping Office.
  2. Any surplus line broker making a filing with the Stamping Office is thereby deemed to constitute the Stamping Office his agent to make such filing with the Commissioner in its discretion.
  3. The Commissioner reserves the power to examine and review any and all such filings with the Stamping Office and all filings therewith are subject to the exercise of this power. (Ins. C. 1763.)

  2173 Pre-Condition to Placement with Non-admitted Insurers

NOTE: Authority cited: Section 1763, Insurance Code. Reference: Section 1763, Insurance Code.
HISTORY
  1. New section filed 11-16-90 as an emergency; operative 11-16-90 (Register 90, No. 50). A Certificate of Compliance must be transmitted to OAL by 3-18-91 or emergency language will be repealed by operation of law on the following day.
  2. New section refiled 3-18-91 as an emergency; operative 3-18-91 (Register 91, No. 14). A Certificate of Compliance must be transmitted to OAL by 7-16-91 or emergency language will be repealed by operation of law on the following day.
  3. Editorial correction of HISTORY 2 (Register 96, No. 16).
  4. Certificate of Compliance as to 3-18-91 order transmitted to OAL 7-10-91; disapproved by OAL on 8-6-91 and repeal ordered 8-12-91 (Register 96, No. 16).

  2174 Placement of Insurance with Alien Nonadmitted Insurers

NOTE: Authority cited: Section 1763, Insurance Code, Reference: Sections 1763 and 1765.1, Insurance Code.
HISTORY
  1. New section filed 12-28-90 as an emergency; operative 1-27-91 (Register 91, No. 4). A Certificate of Compliance must be transmitted to OAL by 5-28-91 or emergency language will be repealed by operation of law on the following day.
  2. Repealed by operation of Government Code section 11346. 1 (g) (Register 9 1, No. 41).
  3. New section filed 7-1-91 as an emergency; operative 7-1-91 (Register91, No. 4 1). A Certificate of Compliance must be transmitted to OAL by 10-29-91 or emergency language will be repealed by operation of law on the following day.
  4. Editorial correction moving forms after section 2174.14 (Register 92, No. 32).
  5. Repealed by operation of Government Code section 11346. 1 (g) (Register 92, No. 39).

  2174.1 Definitions

  1. "Filing" means the providing of documents required under Insurance Code Section 1765.1 (c), (d) and (i) to the Department.
  2. "Report of Examination" means a report of examination by the insurer&s domiciliary regulator listing the condition of the insurer at an as of date that is no later than 5 years from the date of submission.
NOTE: Authority cited: Section 1763, Insurance Code. Reference: Sections 1763 and 1765. 1, Insurance Code.

  2174.2 Schedule of Fees

  1. Initial Filing
    Insurer, or licensee, shall pay in support of a filing for qualification as an eligible surplus line insurer pursuant to Insurance Code Section 1765.1 the filing fee of $4,500 except that for a group of incorporated or a combination of incorporated and unincorporated insurers which underwrite insurance as members of a group of syndicates pursuant to Insurance Code Section 1765.1(a) (2) (C), the filing fee shall be $4,500. In addition, the group shall reimburse the Department for the costs of review of any individual syndicate.
  2. Annual Renewal
    Within twelve months after being added to the list of approved surplus line carriers and annually thereafter, a filing of all documents required by 2174.3(a) must be made and the filing fee for that annual renewal will be $2,250 except that for a group of incorporated or a combination of incorporated insurers which underwrite insurance as members of a group of syndicates pursuant to Insurance Code Section 1765.1 (a) (2) (C), the filing fee shall be $2,250. In addition, the group shall reimburse the Department for the costs of review of any individual syndicate.
  3. Periodic Updates
    Upon the filing of documents, pursuant to the update provisions of 2174.3(b) throughout the year, the filing fee will be $250 per document for updates of financial documents; and $35 per document for all other updates. These document fees shall not apply to any documents filed in connection with the review of any syndicate that is part of a group of incorporated or a combination of incorporated insurers which underwrite insurance as members of a group of syndicates pursuant to Insurance Code Section 1765.1 (a) (2) (C).
  4. Additional Requirements
    All filings made pursuant to this section shall meet the requirements of Insurance code Section 8 and shall be forwarded to the Department at the following address:

    Surplus Lines Enforcement Unit
    Investigation Bureau
    California Department of Insurance
    45 Fremont
    San Francisco, CA 94105

All filings shall be made in quadruplicate, unless otherwise agreed to by the Department.
Note: Authority cited: Section 1763, and 1771, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

  2174.3

  1. Annual Renewal Filing
    Within a year of the initial filing and every year thereafter the insurer or the licensee must file the following:
    1. Foreign Insurers
      1. Financial Documents
        1. Annual Statement as required by Insurance Code Section 1765.1 (c) (1) (A)
        2. Audited Financial report as required by Insurance Code Section 1765.1 (c) (1) (B) & (D)
        3. Latest Report of Examination as required by Insurance Code Section 1765.1 (c) (7)
        4. Quarterly Financial Statements
      2. Non-financial Documents
        1. Certified License as required by Insurance Code Section 1765.1 (c) (2)
        2. Certificate of Good Standing as required by Insurance Code 1765.1 Section (c) (2)
        3. Agent for Service of Process as required by Insurance Code Section 1765.1 (c) (3)
        4. Principal Place of Business as required by Insurance Code Section 1765.1 (c) (4)
        5. Market Conduct Statement as required by Insurance Code Section 1765.1 (c) (5)
        6. Regulatory Disclosure Statement as required by Insurance Code 1765.1 (c) (6)
        7. List of Surplus Line Brokers authorize to issue policies as required by Insurance Code Section 1765.1 (c) (7)
      3. Supplemental information
        1. Proposed Plan of Operation as required under Insurance Code 1765.1 (d) (1) and (h)
        2. Biographical Affidavits pursuant to Insurance Code Section 1765.1 (d) (1)
    2. Alien Insurers
      1. Financial Documents
        1. Audited Financial Report as required by Insurance Code Section 1765.1 (c) (1) (B) & (E)
        2. Latest Financial Statement as required by Insurance Code Section 1765.1 (c) (1) (A) & (E)
        3. Quarterly or half-yearly if available
      2. Non-financial Documents
        1. Trust Agreement as required by Insurance Code Section 1765.1 (c) (1) (C) (i)
        2. Certified License as required by Insurance Code 1765.1 (c) (2)
        3. Certificate of Good Standing as required by Insurance Code Section 1765.1 (c) (2)
        4. Agent for Service of Process as required by Insurance Code Section 1765.1 (c) (3)
        5. Principal Place of Business as required by Insurance Code Section 1765.1 (c) (4)
        6. Market Conduct Statement as required by Insurance Code Section 1765.1 (c) (5)
        7. Regulatory Disclosure Statement as required by Insurance code Section 1765.1 (c) (6)
        8. List of Authorized Surplus Line Brokers as required by Insurance code Section 1765.1 (c) (7)
        9. Most recent quarterly statement of account of assets in the trust as required by Insurance code Section 1765.1 (c) (1) (C) (ii)
      3. Supplemental Information
        1. Proposed Plan of Operation as required by Insurance Code Section 1765.1 (d) (1) and (h)
        2. Biographical Affidavits pursuant to Insurance Code Section 1765.1 (d) (1)
    All documents and information required to be filed pursuant to subdivision (a) must be the most recent version of the document or information. If a document or information has previously been filed to the Department it need not be refiled as part of the annual renewal filing. The cover letter with the annual renewal should mention when and what document was previously filed. If one or more of the documents listed in subdivision (a) is not filed with the Department as part of the annual renewal filing then explain in writing what those documents are and the reason they are not being filed.
  2. Update Requirements
    Whenever a document required in the initial filing or annual renewal filing is materially changed or a more recent version becomes available, the insurer or the licensee must file the document as soon as it is available.
Note: Authority Cited: Section 1763, Insurance Code.
Reference: Sections 1763 and 1765.1 Insurance Code

  2174.4 Public Availability of Documents

  1. All documents filed with the Commissioner under Insurance Code Section 1765.1 except the biographical affidavits and the plan of operation, all periodic filings required under the trust agreement, all orders issued under the Insurance Code Section 1765.1, and all evidence, pleadings and documents relating to hearings held under Insurance Code Section 1765.1, shall be available for public review. Nothing herein shall make any memorandum, study or other document prepared by or for the Department staff in its official capacity, for internal Department use, a public document.
  2. The Commissioner may prepare and distribute to the public a list of insurers to whom section 1765.1 orders have been issued.
NOTE: Authority Cited: Section 1763, Insurance Code.
Reference: Sections 856(a), 1763 and 1765.1, Insurance Code.
Article 7. Production Agency Records

  2190 Authority

These regulations are promulgated pursuant to the authority granted the Commissioner under the provisions of Sections 1727, 1763 and 1768, of the Insurance Code. They shall apply to every agent or broker or surplus line broker or special lines& surplus lines broker licensed by the Commissioner. Surplus lines brokers and special lines& surplus lines brokers shall be subject to these regulations to the same extent and in the same manner as agents and brokers

NOTE: Authority cited: Sections 1727, 1763, and 1768, California Insurance Code. Reference: Sections 1727, 1763 and 1768, California Insurance Code.

  2190.05 Definitions

  1. The term "agent," as used in these regulations, means an insurance agent as defined in Insurance Code Section 1621.
  2. The term "broker" means an insurance broker as defined in Insurance Code Section 1623.
  3. The term "copy" as used in these regulations means any reproduction by which a reasonably clear image of the form, report or statement is provided, including the image of the executing broker&s signature, including but not limited to a photocopy, facsimile transmission copy, and any other electronically transmitted digital reproduction.
  4. The term "secondary office" means an office of a resident agent or broker or surplus lines broker or special lines& surplus lines broker other than the principal
  5. The term "special lines& surplus lines broker" means a person licensed under Insurance Code Section 1760.5 and authorized to do business pursuant to Division 1, Part 2., Chapter 6 Sections 1760.5 through 1780.
  6. The term "surplus line broker" means a person licensed under Insurance Code Section 1765 and authorized to do business pursuant to Division 1, Part 2, Chapter 6 Sections 1760 through 1780.
NOTE: Authority cited: Sections 1727, 1763 and 1768, California Insurance Code. Reference: Sections 1621, 1623, 1727, and 1760 through 1780, California Insurance Code.

  2190.1 General

  1. All record-keeping systems, whether manual or mechanical, must provide an audit trail so that details underlying the summary data, such as invoices, checks, and statements, may be identified and made available on request. All such systems must provide the means to trace any transaction back to its original source or forward to final entry, such as is accomplished by a conventional double-entry bookkeeping system. When automatic data processing systems are used, a description of the system must be available for review by the Department.

    This description must contain statements and illustrations sufficiently detailed to indicate the application or process being performed, the procedures employed in each application or process (such as flow charts, block diagrams or other satisfactory descriptions of input or output procedures) and the controls used to insure accurate and reliable processing.
  2. All record-keeping systems, including automatic data processing systems and computer output microfilms, must be designed and programmed to produce the required information in an intelligible form. Identification of coding systems shall be readily available whenever they are used to record and maintain any of the information required under Sections 2190.2, 2190.3 and 2190.4.
NOTE: Authority cited: Sections 1727, 1763, and 1768, California Insurance Code. Reference: Sections 1727, 1763 and 1768, California Insurance Code.

  2190.2 Required Records

Wherever applicable, the following records shall be maintained by every agent or broker or surplus lines broker or special lines& surplus lines broker with respect to each and every insurance transaction for at least five years after expiration or cancellation date of the policy to which the records pertain:
  1. Name of insured,
  2. Name of insurer,
  3. Policy number,
  4. Effective date, termination date and mid-term cancellation date of coverage,
  5. Amount of gross premium,
  6. Amount of net premium,
  7. Amount of commission and basis on which computed,
  8. Names of persons who receive, or are promised, any commissions or other valuable consideration related to the transaction,
  9. Amount of premium received including itemization of any partial payments or additional premium,
  10. Date premium received by agent or broker,
  11. Date deposited in bank account or bank depository into which premiums are deposited or maintained in accord with Section 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code,
  12. Name and address of bank and number of account in which premium is deposited, or maintained in accord with Section 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code.
  13. Date premium paid by agent or broker to the person entitled thereto and identification of the means of transmittal,
  14. Amount of net and gross return premium,
  15. Date return premium is received from insurer by agent or broker which may be the date the credit is taken from the insurer or the date the check or draft is received, and
  16. Date gross return premium is remitted to person entitled thereto by agent or broker and identification of means of transmittal.
NOTE: Authority cited: Sections 1727,.1763 and 1768, California Insurance Code. Reference: Sections 1727, 1733, 1734, 1763 and 1768 California Insurance Code.

  2190.3 Records by File

  1. Wherever applicable, the following records shall be maintained by every agent or broker or surplus lines broker and special lines& surplus lines broker in a file pertaining to a particular insured for a period of eighteen months after the transaction described by such records:
    1. Identity of each person who transacted the insurance, renewals and any change in coverage,
    2. Records of all binders, whether written or oral, showing the names of insured and insurer, nature of coverage, effective and termination dates and premium for binder or policy to be issued,
    3. Copy of application or memorandum of request for insurance
    4. Correspondence received, copies of correspondence sent, memoranda, notes of conversation, or any other record necessary to describe the transaction.
  2. The following records of surplus line transactions shall be maintained by every agent and broker and surplus lines broker and special lines& surplus lines broker for a period of at least five years after expiration or cancellation date of the policy to which the records pertain: forms, reports or statements required to be maintained or filed under Sections 1763 and 1764.1 of the California Insurance Code.
  3. The agent, broker, surplus line broker or special lines& surplus lines broker who signs the form, report or statement under Insurance Code Section 1763 shall maintain the original. The agent, broker, surplus lines broker or special lines& surplus lines broker who receives the originally signed disclosure statement under Insurance code Section 1764.1 shall maintain the original.
  4. The agent broker, surplus line broker or special lines& surplus lines broker who signs the diligent search form under Insurance Code Section 1763 or receives the originally signed disclosure statement under Insurance code Section 1764.1 shall send copies to all other agents, brokers, surplus lines brokers or special lines& surplus lines brokers involved in the transaction.
  5. The agent, broker, surplus line broker or special lines& surplus lines broker who receives copies of documents pursuant to 2190.3(d), shall maintain the copies which show the signature of the agent, broker, surplus lines broker, special lines& surplus lines broker or applicant who signed it.
NOTE: Authority cited: Sections 1727, 1763 and 1768 California Insurance Code. Reference: Sections 1760.5(b), 1763 and 1764.1 California Insurance Code.

  2190.4 Direct Billing

  1. With respect to any business transacted on a direct billing basis, the following records may be maintained in lieu of the records required by Section 2190.2:
    1. A policy record card or sheet or declaration page,
    2. Copies of premium payment receipts or other memoranda thereof for premiums collected when collected by the agent or broker,
    3. Records of premium payments made by the agent or broker,
    4. Copies of memoranda of any additional or return premium received by the agent or broker,
    5. Monthly or other periodic statements from the insurer showing premium receipts on the agent's or broker's business, and
    6. Copy of any cancellation notice, or letter of cancellation notice,or letter of cancellation for cause.
  2. All records specified in Section 2190.4 (a) (1), (a)(2), (a)(3), (a)(4) and (a)(6) shall be maintained for at least five years after expiration or cancellation date of the policy.


NOTE: Authority cited: Sections 1727, 1763 and 1768, California Insurance Code. Reference: Sections 1727, 1763 and 1768, California Insurance Code.

  2190.5 Bank Records

  1. The following bank records shall be maintained at all times:
    1. Periodic statements of account supplied by the bank for all accounts or depositories into which premiums are deposited or maintained in accord with 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code.
    2. Records of all deposits made into such accounts or depositories into which premiums are deposited or maintained in accord with Section 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code.
    3. Cancelled checks drawn on, or records of withdrawal of funds from, such accounts or depositories into which premiums are deposited or maintained in accord with Section 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code.
  2. Nothing in this section is intended to abrogate the provisions of Insurance code Section 1734 and 1734.5


NOTE: Authority cited: Sections 1727, 1763 and 1768, California Insurance Code. Reference: Sections 1733, 1734 and 1734.5, California Insurance Code.

  2190.6 Interest Bearing Accounts

Whenever a principal has authorized an agent or broker or surplus lines broker or special lines& surplus lines broker to maintain funds received in a fiduciary capacity, as defined in Sections 1733 and 1734 of the Insurance Code, in an interest bearing account and to retain interest earned (i.e., savings account or certificate of deposit), such authorization shall be in writing and the original thereof shall at all times be maintained as part of the pertinent records of the agent or broker and shall be readily available on request, for so long as fiduciary funds are so maintained for such insurer.
NOTE: Authority cited: Sections 1727, 1763 and 1768, California Insurance Code. Reference: Sections 1733 and 1734 , California Insurance Code.

  2190.7 Place Where Records Kept

  1. All records described in Sections 2190.2, 2190.4, 2190.5 and 2190.6 shall be kept in the principal office in this State of the resident agent or broker or surplus lines broker or special lines& surplus lines broker except where otherwise specifically authorized by the commissioner.
  2. All records described by Section 2190.3 shall be maintained at the office servicing the insured.
  3. An agent operating under an exclusive contract with an insurer, including one insurer and its subsidiaries or affiliates, shall, upon termination of the appointment, be required to maintain only such records as such contract authorizes him to retain, provided that the insurer shall bear the responsibility of maintaining within this State all other records which would have otherwise been required to be maintained by the agent, subject to the time limitations set forth in Section 2190.2, 2190.3 and 2190.4.
  4. All records shall be maintained in an orderly manner so that the information therein is readily available and shall be open to inspection or examination of the commissioner at all times and the commissioner may at any time require such licensee to furnish him any information maintained or required to be maintained.
  5. One year after cancellation or expiration of a policy, records pertaining thereto may be stored off premises so long as they are retrievable within two business days.
  6. An agent or broker may maintain the records, which are otherwise required by this article to be kept at the principal office, at a secondary office upon obtaining specific written authorization from the Insurance Commissioner, which authorization may impose any conditions or restrictions which the Insurance Commissioner deems to be necessary and proper.
NOTE: Authority cited: Sections 1727, 1763 and 1768, California Insurance Code. Reference: Sections 1727, 1763 and 1768
Article 9.5 Workers& Compensation Insurance Deposits

 2695.1 Preamble

  1. Section 790.03(h) of the California Insurance Code enumerates sixteen claims settlement practices which, when either knowingly committed on a single occasion, or performed with such frequency as to indicate a general business practice, are considered to be unfair claims settlement practices and are, thus, prohibited by this section of the California Insurance Code. The Insurance Commissioner has promulgated these regulations in order to accomplish the following objectives:
    1. To delineate certain minimum standards for the settlement of claims which when violated knowingly on a single occasion or performed with such frequency as to indicate a general business practice shall constitute an unfair claims settlement practice within the meaning of Insurance Code Section 790.03(h);
    2. To promote the good faith, prompt, efficient and equitable settlement of claims on a cost effective basis;
    3. To discourage and monitor the presentation to insurers of false or fraudulent claims; and,
    4. To encourage the prompt and thorough investigation of suspected fraudulent claims and ensure the prompt and comprehensive reporting of suspected fraudulent claims as required by Insurance Code Section 1872.4.
  2. These regulations are not meant to provide the exclusive definition of all unfair claims settlement practices; other methods, act(s), or practices not specifically delineated in this set of regulations may also be a violation of California Insurance Code Section 790.03(h) pursuant to the provisions of California Insurance Code Section 790.06. These regulations are applicable to the handling or settlement of claims brought under all classes of insurance except as specifically provided below:
    1. Workers' compensation insurance;
    2. Liability insurance for the professional malpractice of health care providers as defined in California Code of Civil Procedure Section 364(f)(1);
    3. Self insured or self funded plans which are bona fide Employee Retirement Income Security Act ("ERISA") plans which are not also multiple employer welfare arrangements, to the extent that these ERISA plans are not covered by insurance;
    4. Any other self funded or self insured plan, to the extent it is not covered by insurance, which is lawfully conducting business in this state.
  3. These regulations recognize the unique relationship which exists under a surety bond between the insurer, the obligee or beneficiary, and the principal. In contrast to other classes of insurance, surety insurance involves a promise to answer for the debt, default or miscarriage of a principal who has the primary duty to pay the debt or discharge the obligation and who is bound to indemnify the insurer. Therefore, only sections 2695.1 through 2695.6, inclusive, section 2695. 10, and sections 2695.12, 2695.13 and 2695.14, inclusive, shall apply to the handling or settlement of claims brought under surety bonds.
  4. These regulations shall not apply to the handling or settlement of claims brought under Workers' Compensation insurance policies.
  5. All licensees, as defined in these regulations, shall have thorough knowledge of the regulations contained in this subchapter.
NOTE: Authority cited: Sections 790.10, 1871.1, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h), Insurance Code.
HISTORY
  1. New subchapter 7.5 (sections 2695.1-2695.17) filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Editorial correction of printing error in HISTORY 1. (Register 93, No. 4).
  3. Amendment of subchapter heading and subsection (b), new subsections (b)(1)-(b)(4), repealer and new subsection (c), amendment of subsection (d), repealer of subsection (e) and subsection relettering filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.2 Definitions

As used in these regulations:
  1. "Beneficiary" means:
    1. for the purpose of life and disability claims, the party or parties entitled to receive the proceeds or benefits occurring under the policy in lieu of the insured; or,
    2. for the purpose of surety claims, a person who is within the class of persons intended to be benefited by the bond;
  2. "Calendar days" means each and every day including Saturdays, Sundays, Federal and California State Holidays, but if the last day for performance of any act required by these regulations falls on a Saturday, Sunday, Federal or State Holiday, then the period of time to perform the act is extended to and including the next calendar day which is not a Saturday, Sunday, or Federal or State holiday;
  3. "Claimant" means a first or third party claimant as defined in these regulations, any person who asserts a right of recovery under a surety bond, an attorney, any person authorized by operation of law to represent the claimant, or any of the following persons properly designated by the claimant in the manner specified in subsection 2695.5(c): an insurance adjuster, a public adjuster, or any member of the claimant's family.
  4. "Claims agent" means any person employed or authorized by an insurer, to conduct an investigation of a claim on behalf of an insurer or a person who is licensed by the Commissioner to conduct investigations of claims on behalf of an insurer. The term "claims agent", however, shall not include the following:
    1. an attorney retained by an insurer to defend a claim brought against an insured; or,
    2. persons hired by an insurer solely to provide valuation as to the subject matter of a claim.
  5. "Extraordinary circumstances" means circumstances outside of the control of the licensee which severely and materially affect the licensee's ability to conduct normal business operations;
  6. "First party claimant" means any person asserting a right under an insurance policy as a named insured, other insured or beneficiary under the terms of that insurance policy, and including any person seeking recovery of uninsured motorist benefits;
  7. "Gross settlement amount" means the amount of the draft tendered plus the amount deducted as provided in the policy in the settlement of an automobile total loss claim;
  8. "Insurance agent" means:
    1. the term "insurance agent" as used in section 31 of the California Insurance Code; or,
    2. the term "life agent" as used in section 32 of the California Insurance Code; or,
    3. any person who has authority or responsibility to notify an insurer of a claim upon receipt of a notice of claim by a claimant; or,
    4. an underwritten title company.
  9. "Insurer" means a person licensed to issue or that issues an insurance policy or surety bond in this state, or that otherwise transacts the business of insurance in the state, including reciprocal and interinsurance exchanges, fraternal benefit societies, stock and mutual insurance companies, risk retention groups, California county mutual fire insurance companies, grants and annuities societies, entities holding certificates of exemption, non-profit hospital service plans, multiple employer welfare arrangements holding certificates of compliance pursuant to Article 4.7 of the Insurance Code, and motor clubs, to the extent that they transact the business of insurance in the State. The term insurer, for purposes of these regulations includes non-admitted insurers, the California FAIR Plan, and those persons licensed to issue or that issue an insurance policy pursuant to an assignment by the California Automobile Assigned Risk Plan, and shall not include insurance agents and brokers, surplus line brokers and special lines surplus line brokers;
  10. "Insurance policy" or "policy" means the written instrument in which any certificate of group insurance, contract of insurance, or nonprofit hospital service plan is set forth. For the purposes of these regulations the terms insurance policy or policy do not include "surety bond" or "bond". For the purposes of these regulations the term insurance policy or policy includes any written instrument in which any certificate of insurance or contract of insurance is set forth that is issued pursuant to the California Automobile Assigned Risk or the California FAIR plan;
  11. "Investigation" means all activities of an insurer or its claims agent related to the determination of coverage, liabilities, or nature and extent of damages afforded by an insurance policy, obligations or duties under a bond, and other obligations or duties arising from an insurance policy or bond.
  12. "Knowingly committed" means performed with actual, implied or constructive knowledge, including, but not limited to, that which is implied by operation of law.
  13. "Licensee" means any person that holds a license or Certificate of Authority from the Insurance Commissioner, or any other entity for whom the Insurance Commissioner's consent is required before transacting business in the State of California or with California residents. The term "licensee" for purpose of these regulations does not include an underwritten title company if the underwriting agreement between the underwritten title company and the title insurer affirmatively states that the underwritten title company is not authorized to handle policy claims on behalf of the title insurer.
  14. "Notice of claim" means any written or oral notification to an insurer or its agent that reasonably apprises the insurer that the claimant wishes to make a claim against a policy or bond issued by the insurer and that a condition giving rise to the insurer's obligations under that policy or bond may have arisen. For purposes of these regulations the term "notice of claim" shall not include any written or oral communication provided by an insured or principal solely for informational or incident reporting purposes
  15. "Notice of legal action" means notice of an action commenced against the insurer with respect to a claim, or notice of action against the insured received by the insurer, or notice of action against the principal under a bond, and includes any arbitration proceeding;
  16. "Obligee" means the person named as obligee in a bond;
  17. "Person" means any individual, association, organization, partnership, business, trust, corporation or other entity;
  18. "Principal" means the person whose debt or other obligation is secured or guaranteed by a bond and who has the primary duty to pay the debt or discharge the obligation;
  19. "Proof of claim" means any documentation in the claimant's possession submitted to the insurer which provides any evidence of the claim and that supports the magnitude or the amount of the claimed loss.
  20. "Remedial measures" means those actions taken by an insurer to correct or cure any error or omission in the handling of claims on the part of its insurance agent as defined in subsection 2695.2(h), including, but not limited to:
    1. written notice to the insurance agent that he/she is in violation of the regulations contained in this subchapter;
    2. transmission of a copy of the regulations contained in this subchapter and instructions for their implementation;
    3. reporting the error or omission in the handling of claims by the insurance agent to the Department of Insurance;
  21. "Replacement crash part" means a replacement for any of the nonmechanical sheet metal or plastic parts which generally constitute the exterior of a motor vehicle, including inner and outer panels;
  22. "Single act" for the purpose of determining any penalty pursuant to California Insurance Code Section 790.035 is any commission or omission which in and of itself constitutes a violation of California Insurance Code Section 790.03 or this subchapter;
  23. "Surety bond" or "bond" means the written instrument in which a contract of surety insurance, as defined in California Insurance Code Section 105, is set forth,
  24. "Third party claimant" means any person asserting a claim against any person or the interests insured under an insurance policy;
  25. "Willful" or "Willfully" when applied to the intent with which an act is done or omitted means simply a purpose or willingness to commit the act, or make the omission referred to in the California Insurance Code or this subchapter. It does not require any intent to violate law, or to injure another, or to acquire any advantage.
NOTE: Authority cited: Sections 132(d), 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 31, 32, 101, 106, 675.5(b), (c) and (d), 676.6, 790.03(h) and 10082, Insurance Code.

HISTORY
  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Amendment filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.3 File and Record Documentation

  1. Every licensee's claim files shall be subject to examination by the Commissioner or by his or her duly appointed designees. These files shall contain all documents, notes and work papers (including copies of all correspondence) which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed and the licensee's actions pertaining to the claim can be determined;
  2. To assist in such examination all insurers shall:
    1. maintain claim data that are accessible, legible and retrievable for examination so that an insurer shall be able to provide the claim number, line of coverage, date of loss and date of payment of the claim, date of acceptance, denial or date closed without payment; this data must be available for all open and closed files for the current year and the four preceding years;
    2. record in the file the date the licensee received, date(s) the licensee processed and date the licensee transmitted or mailed every material and relevant document in the file; and
    3. maintain hard copy files or maintain claim files that are accessible, legible and capable of duplication to hard copy; files shall be maintained for the current year and the preceding four years.
  3. The requirements of this section shall be satisfied where the licensee provides documentation evidencing inability to obtain data, nonexistence of data, or difficulty in obtaining clear documentary support for actions due to catastrophic losses, or other unusual circumstances providing the licensee establishes to the satisfaction of the Commissioner that the circumstances alleged by the licensee do exist and have materially affected the licensee's ability to comply with this regulation. Any licensee that alleges an inability to comply with this section shall establish and submit to the Commissioner a plan for file and record documentation to be used by such licensee while the circumstances alleged to preclude compliance with this subsection continue to exist.
NOTE: Authority cited: Sections 710.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h), Insurance Code.

HISTORY
  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Amendment of subsections (b)(1) and (b)(2) filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.4 Representation of Policy Provisions and Benefits

  1. Every insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant. When additional benefits might reasonably be payable under an insured's policy upon receipt of additional proofs of claim, the insurer shall immediately communicate this fact to the insured and cooperate with and assist the insured in determining the extent of the insurer's additional liability.
  2. No insurer shall conceal benefits, coverages or other provisions of the bond which may apply to the claim presented under a surety bond.
  3. No insurer shall deny a claim on the basis of the claimant's failure to exhibit property, unless there is documentation in the file (1) of demand by the insurer, and unfounded refusal by the claimant, to exhibit property, or (2) of the breach of any policy provision providing for the exhibition of property.
  4. Except where a time limit is specified in the policy, no insurer shall require a first party claimant under a policy to give notification of a claim or proof of claim within a specified time.
  5. No insurer shall:
    1. request that a claimant sign a release that extends beyond the subject matter which gave rise to the claim payment unless, prior to execution of the release the legal effect of the release is disclosed and fully explained by the insurer to the claimant in writing. For purposes of this subsection, an insurer shall not be required to provide the above explanation or disclosure to a claimant who is represented by an attorney at the time the release is presented for signature;
    2. be precluded from including in any release a provision requiring the claimant to waive the provisions of California Civil Code Section 1542, provided that prior to execution of the release the legal effect of the release is disclosed and fully explained by insurer to the claimant in writing. For purposes of this subsection, an insurer shall not be required to provide the above explanation or disclosure to a claimant who is represented by an attorney at the time the release is presented for signature.
  6. No insurer shall issue checks or drafts in partial settlement of a loss or claim that contain or are accompanied by language releasing the insurer, the insured, or the principal on a surety bond from total liability unless the policy or bond limit has been paid, or there has been a compromise settlement agreed to by the claimant and the insurer as to coverage and amount payable under the insurance policy or bond.
NOTE: Authority cited: Sections 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(h)(1), (3) and (4), Insurance Code.

HISTORY
  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Amendment of section heading and subsection (a), repealer and new subsection (b), repealer of subsection (f) and subsection relettering filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.5 Duties upon Receipt of Communications

  1. Upon receiving any written or oral inquiry from the Department of Insurance concerning a claim, every licensee shall immediately, but in no event more than twenty-one (21) calendar days of receipt of that inquiry, furnish the Department of Insurance with a complete written response based on the facts as then known by the licensee. A complete written response addresses all issues raised by the Department of Insurance in its inquiry and includes copies of any documentation and claim files requested. This section is not intended to permit delay in responding to inquiries by Department personnel conducting a scheduled examination on the insurer's premises.
  2. Upon receiving any communication from a claimant, regarding a claim, that reasonably suggests that a response is expected, every licensee shall immediately, but in no event more than fifteen (15) calendar days after receipt of that communication, furnish the claimant with a complete response based on the facts as then known by the licensee. This subsection shall not apply to require communication with a claimant subsequent to receipt by the licensee of a notice of legal action by that claimant.
  3. The designation specified in subsection 2695.2(c) shall be in writing, signed and dated by the claimant, and shall indicate that the designated person is authorized to handle the claim. All designations shall be transmitted to the insurer and shall be valid from the date of execution until the claim is settled or the designation is revoked. A designation may be revoked by a writing transmitted to the insurer, signed and dated by the claimant, indicating that the designation is to be revoked and the effective date of the revocation.
  4. Upon receiving notice of claim, every licensee or claims agent shall immediately transmit notice of claim to the insurer. Failure of the licensee or claims agent to immediately transmit notice of claim to the insurer shall constitute a separate and distinct violation of California Insurance Code Section 790.03(h)(3) and this subsection, where the insurer has provided the appointed licensee or claims agent with written instructions as to the proper handling of a notice of claim. Transmission of the notice of claim by the licensee or claims agent to the insurer in conformity with the written instructions received from the insurer shall satisfy the licensee's or claims agent's duty under this section to promptly transmit the notice to the insurer.
  5. Upon receiving notice of claim, every insurer, except as specified in subsection 2695.5(e)(4) below, shall immediately, but in no event more than fifteen (15) calendar days later, do the following unless the notice of claim received is a notice of legal action:
    1. Acknowledge receipt of such notice to the claimant unless payment is made within that period of time. If the acknowledgement is not in writing, a notation of acknowledgement shall be made in the insurer's claim file and dated. Failure of an insurance agent or claims agent to promptly transmit notice of claim to the insurer shall be imputed to the insurer except where the subject policy was issued pursuant to the California Automobile Assigned Risk Program.
    2. Provide to the claimant necessary forms, instructions, and reasonable assistance, including but not limited to, specifying the information the claimant must provide for proof of claim;
    3. Begin any necessary investigation of the claim.
    4. Subsection 2695.5(e) shall not apply to claims arising from policies of disability insurance subject to Section 10123.13 of the Insurance Code or life insurance subject to Section 10172.5 of the Insurance Code.
  6. An insurer may not require that the notice of claim under a policy be provided in writing unless such requirement is specified in the insurance policy or an endorsement thereto.
NOTE: Authority cited: Sections 790.10, 12340-12417, inclusive, 12921, 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(h)(2) and (3), Insurance Code.

HISTORY
  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Amendment of section heading and section filed 1-10-97; operative 5-1G-97 (Register 97, No. 2).

  2695.6 Training and Certification

  1. Every insurer shall adopt and communicate to all its claims agents written standards for the prompt investigation and processing of claims, and shall do so within ninety (90) days after the effective date of these regulations or any revisions thereto.
  2. All licensees shall provide thorough and adequate training regarding the regulations to all their claims agents. Licensees shall certify that their claims agents have been trained regarding these regulations and any revisions thereto. However, licensees need not provide such training or certification to duly licensed attorneys.

    A licensee shall demonstrate compliance with this subsection by the following methods:
    1. where the licensee is an individual, the licensee shall annually certify in writing under penalty of perjury that he or she has read and understands the regulations and any and all amendments thereto;
    2. where the licensee is an entity, the annual written certification shall be executed, under penalty of perjury, by a principal of the entity as follows:
      1. that the licensee's claims adjusting manual contains a copy of these regulations and all amendments thereto; and,
      2. that clear written instructions regarding the procedures to be followed to effect proper compliance with this subchapter were provided to all its claims agents;
    3. where the licensee retains independent adjusters, the licensee must provide training to the independent adjusters regarding these regulations and annually certify, in a declaration executed under penalty of perjury, that such training is provided. Alternately, the independent adjuster may annually certify in writing, under penalty of perjury, on an annual basis, that he or she has read and understands these regulations and all amendments thereto or has successfully completed a training seminar which explains these regulations;
    4. a copy of the certification required by subsections 2695.6(b)(1), (2) or (3) shall be maintained at all times at the principal place of business of the licensee, to be provided to the Commissioner only upon request.
    5. the annual certification required by this subsection shall be completed on or before September 1 of each calendar year.
NOTE: Authority cited: Sections 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h)(3), Insurance Code.

HISTORY
  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Amendment of section heading and section filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.7 Standards for Prompt, Fair and Equitable Settlements

  1. No insurer shall discriminate in its claims settlement practices based upon the claimant's race, gender, income, religion, language, sexual orientation, ancestry, national origin, or physical disability, or upon the territory of the property or person insured.
  2. Upon receiving proof of claim, every insurer, except as specified in subsection 2695.7(b)(4) below, shall immediately, but in no event more than forty (40) calendar days later, accept or deny the claim, in whole or in part.
    1. Where an insurer denies or rejects a first party claim in whole or in part, it shall do so in writing and shall provide to the claimant a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial which is then within the insurer's knowledge. Where an insurer's denial a of a first party claim, in whole or in part, is based on a specific policy provision, condition or exclusion, the written denial shall include reference thereto and provide an explanation of the application of the provision, condition or exclusion to the claim. Every insurer that denies or rejects a third party claim in whole or in part, or disputes liability or damages shall do so in writing.
    2. Subject to the provisions of subsection 2695.7(k), nothing contained in subsection 2695.7(b)(1) shall require an insurer to disclose any information that could reasonably be expected to alert a claimant to the fact that the subject claim is being investigated as a suspected fraudulent claim.
    3. Written notification pursuant to this subsection shall include a statement that, if the claimant believes the claim has been wrongfully denied or rejected, he or she may have the matter reviewed by the California Department of Insurance, and shall include the address and telephone number of the unit of the Department which reviews claims practices.
    4. The time frame in subsection 2695.7(b) shall not apply to claims arising from policies of disability insurance subject to Section 10123.13 of the Insurance Code, life insurance subject to Section 10172.5 of the Insurance Code, or mortgage guaranty insurance subject to Section 12640.09(a) of the Insurance Code, and shall not apply to automobile repair bills arising from policies of automobile collision and comprehensive insurance subject to Section 560 of the Insurance Code.
  3.  
    1. (1) If more time is required than is allotted in subsection 2695.7(b) to determine whether a claim should be accepted and/or denied in whole or in part, then, every insurer shall provide the claimant, within the time frame specified in subsection 2695.7(b), with written notice of the need for additional time. This written notice shall specify any additional information the insurer requires in order to make a determination and state any continuing reasons for the insurer's inability to make a determination. Thereafter, the written notice shall be provided every thirty (30) calendar days until a determination is made or notice of legal action is served. If the determination cannot be made until some future event occurs, then the insurer shall comply with this continuing notice requirement by advising the claimant of the situation and providing an estimate as to when the determination can be made.
    2. Subject to the provisions of subsection 2695.7(k), nothing contained in subsection 2695.7(c)(1) shall require an insurer to disclose any information that could reasonably be expected to alert a claimant to the fact that the claim is being investigated as a possible suspected fraudulent claim.
  4. No insurer shall persist in seeking information not reasonably required for or material to the resolution of a claim dispute.
  5. No insurer shall delay or deny settlement of a first party claim on the basis that responsibility for payment should be assumed by others, except as may otherwise be provided by policy provisions, statutes or regulations, including those pertaining to coordination of benefits.
  6. Except where a claim has been settled by payment, every insurer shall provide written notice of any statute of limitation or other time period requirement upon which the insurer may rely to deny a timely claim. Such notice shall be given to the claimant not less than sixty (60) days prior to the expiration date; except, if notice of claim is first received by the insurer within that sixty days, then notice of the expiration date must be given to the claimant immediately. With respect to a first party claimant in a matter involving an uninsured motorist, this notice shall be given at least thirty (30) days prior to the expiration date; except, if notice of claim is first received by the insurer within that thirty days, then notice of the expiration date must be given to the claimant immediately. This subsection shall not apply to a claimant represented by counsel on the claim matter.
  7. No insurer shall attempt to settle a claim by making a settlement offer that is unreasonably low. The Commissioner shall consider any admissible evidence offered regarding the following factors in determining whether or not a settlement offer is unreasonably low
    1. the extent to which the insurer considered evidence submitted by the claimant to support the value of the claim;
    2. the extent to which the insurer considered evidence made known to it or reasonably available;
    3. the extent to which the insurer considered the advice of its claims adjuster as to the amount of damages;
    4. the extent to which the insurer considered the advice of its counsel that there was a substantial likelihood of recovery in excess of policy limits;
    5. the procedures used by the insurer in determining the dollar amount of property damage;
    6. the extent to which the insurer considered the probable liability of the insured and the likely jury verdict or other final determination of the matter;
    7. any other credible evidence presented to the Commissioner that demonstrates that the final amount offered in settlement of the claim by the insurer is below the amount that a reasonable person with knowledge of the facts and circumstances would have offered in settlement of the claim.
  8. Upon acceptance of the claim and, when necessary, upon receipt of a properly executed release, every insurer, except as specified in subsection 2695.7(h)(1) and (2) below, shall immediately, but in no event more than thirty (30) calendar days later, tender payment of the amount of the claim which has been determined and is not disputed by the insurer. In claims where multiple coverage is involved, payments which are not in dispute and where the payee is known shall be tendered immediately, but in no event in more than thirty (30) calendar days, if payment would terminate the insurer's known liability under that individual coverage, unless impairment of the insured's interests would result. This subsection shall not apply where the policy provides for a waiting period after acceptance of claim and before payment of benefits.
    1. Subsection 2695.7(h) shall not apply to claims arising from policies of disability insurance subject to Section 10123.13 of the Insurance Code, of life insurance subject to Section 10172.5 of the Insurance Code, of mortgage guaranty insurance subject to Section 12640.09(a) of the Insurance Code, or of fire insurance subject to Section 2057 of the Insurance Code, and shall not apply to automobile repair bills arising from policies of automobile collision and comprehensive insurance subject to Section 560 of the Insurance Code.
    2. Any insurer issuing a title insurance policy shall either tender payment pursuant to subsection 2695.7(h) or take action to resolve the problem which gave rise to the claim immediately upon, but in no event more than thirty (30) calendar days after, acceptance of the claim.
  9. No insurer shall inform a claimant that his or her rights may be impaired if a form or release is not completed within a specified time period unless the information is given for the purpose of notifying the claimant of any applicable statute of limitations or policy provision or the time limitation within which claims are required to be brought against state or local entities.
  10. No insurer shall request or require an insured to submit to a polygraph examination unless authorized under the applicable insurance contract and state law.
  11. Subject to the provisions of subsection 2695.7(c), where there is a reasonable basis, supported by specific information available for review by the California Department of Insurance, for the belief that the claimant has submitted or caused to be submitted to an insurer a suspected false or fraudulent claim as specified in California Insurance Code Sections 1871.1(a) and 1871.4(a), the number of calendar days specified in subsection 2695.7(b) shall be:
    1. increased to eighty (80) calendar days; or,
    2. suspended until otherwise ordered by the Commissioner, provided the insurer has complied with California Insurance Code Section 1872.4 and the insurer can demonstrate to the Commissioner that it has made a diligent attempt to determine whether the subject claim is false or fraudulent within the eighty day period specified by subsection 2695.7(k)(1).
  12. No insurer shall deny a claim based upon information obtained in a telephone conversation or personal interview with any source unless the telephone conversation or personal interview is documented in the claim file pursuant to the provisions of Section 2695.3.
  13. No insurer shall make a payment to a provider, pursuant to a policy provision to pay medical benefits, and thereafter seek recovery or set-off from the insured on the basis that the amount was excessive and/or the services were unnecessary, except in the event of a proven false or fraudulent claim, subject to the provisions of Section 10 123.145 of the California Insurance Code.
  14. Every insurer requesting a medical examination for the purpose of determining liability under a policy provision to pay medical benefits shall do so only when the insurer has a good faith belief that such an examination is necessary to enable the insurer to determine the reasonableness and/or necessity of any medical treatment.
  15. No insurer shall require that a claimant withdraw, rescind or refrain from submitting any complaint to the California Department of Insurance regarding the handling of a claim or any other matter complained of as a condition precedent to the settlement of any claim.
NOTE: Authority cited: Sections 553, 554, 790.10, 11580.2(k), 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2, 11152 and 1861.03(a), Government Code; McLaughlin v. Connecticut General Life Ins. Co., 565 F.Supp. 434 (N.D.Cal. 1983). Reference: Section 790.03(h)(2), (3), (4), (5), (13) and (15), 1871. 1, and 1872.4, Insurance Code.

HISTORY
  1. New section filed 12-15-92; operative 1-4-93 (Register 92, No. 52).
  2. Amendment of section heading, section and NOTE filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

 2695.8 Additional Standards Applicable to Automobile Insurance

  1. This section enumerates standards which apply to adjustment and settlement of automobile insurance claims. For purposes of this section:
    1. the words "automobile" and "vehicle" are used synonymously; and
    2. a comparable automobile is one of like kind and quality, made by the same manufacturer, of the same or newer model year, of a similar body type, with similar options and mileage as the insured vehicle. Any differences between the comparable automobile and the insured vehicle shall be permitted only if the insurer fairly adjusts for such differences. A comparable automobile must be available for retail purchase by the general public in the local market area within ninety (90) calendar days of the final settlement offer.
  2. When the insurance policy provides for the adjustment and settlement of first party automobile total losses on the basis of actual cash value or replacement with a comparable automobile, one of the following methods must apply:
    1. The insurer may elect a cash settlement based upon the actual cost, less any deductible provided in the policy, to purchase a comparable automobile including all applicable taxes, license fees and other fees incident to transfer of evidence of ownership of a comparable automobile. Such cost shall be determined as follows and, once determined, shall be fully itemized and explained in writing for the claimant:
      1. when comparable automobiles are available or were available in the local market area in the last 90 days, the average cost of two or more such comparable automobiles; or,
      2. when comparable automobiles are not available in the local market area, the average of two or more quotations from two or more licensed dealers in the local market area; or
      3. when an automobile total loss is adjusted or settled on a basis which varies from the methods described in subsections (b)(1)(A) and (b)(1)(B) of this section, the determination of value must be supported by documentation. Any deductions from value, including deduction for salvage, must be discernible, measurable, itemized, and specified as well as appropriate in dollar amount and so documented in the claims file. The insurer must take reasonable steps to verify that the value so determined is accurate and representative of the market value of a comparable automobile in the local market area.
    2. The insurer may elect to offer a replacement automobile which isa specified comparable automobile available to the insured, with all applicable taxes, license fees and other fees incident to transfer of evidence of insurer's claim file. A replacement automobile must be in as good or better over all condition than the insured vehicle and available for inspection within a reasonable distance of the insured's residence.
  3. Every insurer shall, if notified within thirty-five (35) calendar days after receiving the claim draft or final settlement offer that the insured cannot purchase a comparable automobile for the gross settlement amount, reopen its claim file and utilize the following procedures:
    1. The insurer shall locate a comparable automobile for the gross settlement amount determined by the company at the time of settlement and shall provide the insured with the information required in (c)(4), below, or offer a replacement vehicle in accordance with section 2695.8(b)(2). Any such vehicle must be available in the local market area; or,
    2. The insurer shall either pay the insured the difference between the amount of the gross settlement and the cost of the comparable automobile which the insured has located, or negotiate and purchase this vehicle for the insured; or,
    3. The insurer shall invoke the appraisal provision of the insurance policy.
    4. No insurer is required to take action under this subsection if its documentation to the insured at the time of final settlement offer included written notification of the identity of a specified comparable automobile which wasavailable for purchase at the time of final settlement offer for the gross settlement amount determined by the insurer. The documentation shall include the telephone number (including area code) or street address of the seller of the comparable automobile and:
      1. the vehicle identification number (VIN) or,
      2. the stock or order number of the vehicle from a licensed dealer, or
      3. the license plate number of such comparable vehicle.
  4. No insurer shall, where liability and damages are reasonably clear, recommend that the third party claimant make a claim under his or her own policy to avoid paying the claim under the policy issued by that insurer.
  5. No insurer shall:
    1. require that an automobile be repaired at a specific repair shop; or,
    2. direct, suggest or recommend that an automobile be repaired at a specific repair shop, unless,
      1. such referral is expressly requested by the claimant; or,
      2. the claimant has been informed in writing of the right to select the repair facility; and,
      3. the insurer that elects to repair a vehicle directs, suggests or recommends that a specific repair shop be used, shall cause the damaged vehicle to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by these regulations.
    3. require a claimant to travel an unreasonable distance either to inspect a replacement automobile, to conduct an inspection of the vehicle, to obtain a repair estimate or to have the automobile repaired at a specific repair shop.
  6. If partial losses are settled on the basis of a written estimate prepared by or for the insurer, the insurer shall supply the claimant with a copy of the estimate upon which thesettlement is based. The estimate prepared by or for the insurer shall be in accordance with applicable policy provisions, and of an amount which willallow for repairs to be made in a workmanlike manner. If the claimant subsequently claims, based upon a written estimate which heor she obtains, that necessary repairs will exceed the written estimate prepared by or for the insurer, the insurer shall:
    1. pay the difference between the written estimate and a higher estimate obtained by the claimant; or,
    2. promptly provide the claimant with the name of at least one repair shop, if requested by the claimant pursuant to subsection 2695.8(e)(2), that will make the repairs for the amount of the written estimate. If the insurer designates fewer than three repair shops, the insurer shall assure that the repairs are performed in a workmanlike manner. The insurer shall maintain documentation of all such communications; or,
    3. reasonably adjust any written estimates prepared by the repair shop of the insured's choice.
  7. No insurer shall require the use of non-original equipment manufacture replacement crash parts in the repair of an automobile unless:
    1. the parts are at least equal to the original equipment manufacturer parts in terms of kind, quality, safety, fit, and performance;
    2. insurers specifying the use of non-original equipment manufacturer replacement crash parts shall pay the cost of any modifications to the parts which may become necessary to effect the repair; and,
    3. insurers specifying the use of non-original equipment manufacture replacement crash parts warrant that such parts are of like kind, quality, safety, fit, and performance as original equipment manufacturer replacement crash parts; and,
    4. all original and non-original manufacture replacement crash parts, manufactured after the effective date of this subchapter, when supplied by repair shops shall carry sufficient permanent, non-removable identification so as to identify the manufacturer. Such identification shall be accessible to the greatest extent possible after installation.
  8. No insurer shall require an insured or claimant to supply parts for replacement.
  9. Every insurer shall provide written notification to a first party claimant as to whether the insurer intends to pursue subrogation of the claim. Where an insurer elects not to pursue subrogation or discontinues pursuit of subrogation it shall include in its notification a statement that any recovery to be pursued is the responsibility of the first party claimant. This subsection does not require notification if the deductible is waived, the coverage under which the claim is paid requires no deductible to be paid, the total loss sustained does not exceed the applicable deductible, or there is no legal basis for subrogation.
  10. Every insurer that makes a subrogation demand shall include in every demand the first party claimant's deductible. Every insurer shall share subrogation recoveries on a proportionate basis with the first party claimant, unless the first party claimant has otherwise recovered the whole deductible amount. No insurer shall deduct legal or other expenses from the recovery of the deductible unless the insurer has retained an outside attorney or collection agency to collect that recovery. The deduction may only be for a pro rata share of the allocated loss adjustment expense.
  11. When the amount claimed is adjusted because of betterment, depreciation, or salvage, all justification shall be contained in the claim file. Any adjustments shall be discernable, measurable, itemized, and specified as to dollar amount, and shall accurately reflect the value of the betterment, depreciation, or salvage. The basis for any adjustment shall be fully explained to the claimant in writing and shall:
    1. reflect a measurable difference in market value attributable to the condition and age of the vehicle, or
    2. apply only to parts normally subject to repair and replacement during the useful life of the vehicle such as, but not limited to, tires, batteries, et cetera.
  12. Every insurer shall provide reasonable notice to a claimant before terminating payment for storage charges, so that the claimant has time to remove the vehicle from storage.
  13. Unless the insurer has provided an insured with the name of a specific towing company prior to the insured's use of another towing company, the insurer shall pay the reasonable towing charges of the towing company used by the insured.
NOTE: Authority cited: Sections 790.10, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(c) and 790.03(h)(3), Insurance Code.

HISTORY

  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Editorial correction of subsection (i) (Register 95, No. 42).
  3. Amendment of section heading and section filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.9 Additional Standards Applicable to Fire and Extended Coverage Type Policies with Replacement Cost Coverage

  1. (a) When a fire and extended coverage insurance policy provides for the adjustment and settlement of first party losses based on replacement cost, the following standards apply:
    1. When a loss requires repair or replacement of an item or part, any consequential physical damage incurred in making the repair or replacement not otherwise excluded by the policy shall be included in the loss. The insured shall not have to pay for depreciation nor any other cost except for the applicable deductible.
    2. When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall replace all items in the damaged area so as to conform to a reasonably uniform appearance.
NOTE: Authority cited: Sections 790.10, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(h)(3),(5) and (7), Insurance Code.

HISTORY

  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Amendment of section heading and section filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.10 Standards Applicable to Surety Insurance

  1. No insurer shall base or vary its claims settlement practices, or its standard of scrutiny and review, upon the claimant's race, gender, income, religion, language, sexual orientation, ancestry, national origin, or physical disability, or upon the territory of the property or person insured.
  2. Within sixty calendar days after receipt by the insurer of proof of claim, and provided the claim is not in litigation or arbitration, the insurer shall accept or deny the claim, in whole or in part, and affirm or deny liability. Every insurer that denies or rejects a claim in whole or in part, or disputes liability or damages, shall do so in writing. Written notification pursuant to this subsection shall also include a notification that the claimant may have the matter reviewed by the California Department of Insurance and shall provide the address and telephone number of the unit of the Department which reviews complaints regarding claims practices.
  3. In the event an insurer requires more time than is allotted in subsection 2695. 10(b) to determine whether a claim should be accepted and/or denied, in whole or in part, the insurer shall provide the claimant with written notice of the need for such additional time within the time specified in subsection 2695.10(b). Such written notice shall specify the reasons for the need for such additional time, including specification of any additional information the insurer requires in order to make such determination. The insurer shall provide the claimant with written notice as to the continuing reasons for the insurer's inability to make such a determination. Except in cases where extraordinary circumstances are present which materially affect the insurer's ability to comply, such written notice shall be provided within 30 calendar days of the date of the initial notification, and every 30 calendar days thereafter until such determination is made or notice of legal action is received. If the determination cannot be made until some event, process, or third party determination is made, then the insurer shall comply with this requirement by advising the claimant of the situation and provide an estimate as to when the determination can be made.
  4. No insurer shall fail to pursue diligently an investigation of a claim, or persist in seeking information not reasonably required for or material to resolution of a claim dispute.
  5. No insurer shall deny a claim upon information obtained in a telephone conversation or personal interview with any source unless the telephone conversation or personal interview is documented in the claim file pursuant to the provisions of section 2695.3.
  6. Where the claim is to be settled by payment, and where neither the claim nor the amount is in dispute, such payment shall be tendered (1) within 15 calendar days following affirmation of liability where the insurer does not require the claimant to execute a release, or (2) within 15 calendar days following the insurer's receipt of a release properly executed by the claimant, where such release is required by the insurer. Such release shall be provided to the claimant within ten (10) calendar days following affirmation of liability. Where multiple claimants are involved, payment shall be made pursuant to this subsection, provided such payment shall not increase the insurer's liability, or impair the rights of other claimants under the bond.
  7. In determining whether the insurer has violated this subchapter, the Commissioner shall take into consideration the amount of the bond, the principal's position as to its liability under the bond, the complexity and size of the claim and the nature and extent of any extraordinary circumstances.
NOTE: Authority cited: Sections 790.10, 12921, 12921.1 and 12926, Insurance Code. Reference: Sections 790.03(h)(3), (4), (15) and 12921.3, Insurance Code; and Section 2807, Civil Code.

HISTORY

  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Amendment of section heading, repealer and new section, and amendment of NOTE filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.11 Additional Standards Applicable to Life and Disability Insurance Claims

  1. No insurer shall withhold any portion of any benefit payable as a result of a claim on the basis that the sum withheld is an adjustment or correction for an overpayment made on a prior claim arising under the same policy unless:
    1. the insurer's files contain clear, documented evidence of an overpayment and written authorization from the insured or assignee, if applicable, permitting such withholding procedure, or
    2. the insurer's files contain clear, documented evidence pursuant to section 2695.3 of all of the following:
      1. The overpayment was erroneous under the provisions of the policy.
      2. The error which resulted in the payment is not a mistake of the law.
      3. The insurer notifies the insured within six (6) months of the date of the error, except that in instances of error prompted by representations or nondisclosure of claimants or third parties, the insurer notifies the insured within fifteen (15) calendar days after the date of discovery of such error. For the purpose of this subsection, the date of the error shall be the day on which the draft for benefits is issued.
      4. Such notice states clearly the cause of the error and states the amount of the overpayment.
      5. The procedure set forth above in (a)(2)(A) through (D) above may not be used if the overpayment is the subject of a reasonable dispute as to facts.
  2. With each claim payment, the insurer shall provide to the claimant and assignee, if any, an explanation of benefits which shall include, if applicable, the name of the provider or services covered, dates of service, and a clear explanation of the computation of benefits.
  3. An insurer may not impose a penalty upon any insured for noncompliance with insurer requirements for precertification of benefits unless such penalties are specifically and clearly set forth in writing in the policy or certificate of insurance.
NOTE: Authority cited: Sections 790.10, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(h)(1), (2), (3), (5), and (13), Insurance Code.

HISTORY

  1. New section filed 12-15-92; operative 1-14-13 (Register 92, No. 52).
  2. Repealer of former section 2695.11 and renumbering and amendment of former section 2695.12 to new section 2695.11 filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.12 Noncompliance and Penalties

  1. A licensee has knowingly committed an act or acts in noncompliance with this subchapter under the following circumstances including, but not limited to:
    1. where the licensee has promulgated express policies or procedures that are in noncompliance with this subchapter; or
    2. where the act(s) in noncompliance with this subchapter are committed by an employee or claims agent of a licensee and the licensee through its management, either:
      1. gives prior approval of the act(s); or,
      2. subsequently ratifies the propriety of the act(s); or,
    3. where the act(s) are committed by an employee or claims agent of a licensee, and it is established that:
      1. the licensee has failed to adopt, communicate and implement standards for the prompt, fair and reasonable investigation and settlement of claims in accordance with this subchapter or assure that such standards are consistently being met; or,
      2. the licensee's management was aware of facts which did apprise or should have apprised the licensee of the act(s) and the licensee failed to take any remedial measures.
  2. In determining noncompliance with this subchapter and appropriate penalties, if any, the Commissioner shall consider admissible evidence on the following:
    1. the existence of extraordinary circumstances;
    2. whether the licensee has a good faith and reasonable basis to believe that the claim or claims are fraudulent or otherwise in violation of applicable law and the licensee has complied with the provisions of Section 1872.4 of the Insurance Code;
    3. the complexity of the claims involved;
    4. gross exaggeration of the value of the property or severity of the injury, or amount of damages incurred;
    5. substantial mischaracterization of the circumstances surrounding the loss or the alleged default of the principal;
    6. secreting of property which has been claimed as lost or destroyed.
    7. the relative number of claims where the noncomplying act(s) are found to exist, as contrasted to the total number of claims handled by the licensee during the relevant time period;
    8. whether the licensee has taken remedial measures with respect to the noncomplying act(s);
    9. the existence or nonexistence of previous violations by the licensee;
    10. the degree of harm occasioned by the noncompliance; and
    11. whether, under the totality of circumstances, the licensee made a good faith attempt to comply with the provisions of this subchapter.
    12. Frequency of occurrence and/or severity of the detriment to the public caused by the violation of a particular subsection of this subchapter.
  3. The Commissioner shall not consider reasonable mistakes or opinions as to valuation of property, losses or damages when determining the licensee's non-compliance with this subchapter or penalties to be assessed.
NOTE: Authority cited: Sections 790.035, 790.07, 790.08, 790.09, 790.10, 1872.4, 12340-12417, inclusive, 12921, 1065, 704, 780-784, 1011, 11690, 12926 and 12928.6, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(h), 790.035(a), 790.04, 790.05, 790.06, 790.08 and 790. 10, Insurance Code.

HISTORY

  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Renumbering and amendment of former section 2695.12 to new section 2695.11 11, and renumbering and amendment of former section 2695.14 to new section 2695.12, including amendment of section heading and NOTE, filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.13 Severability

If any provision or clause of this rule or the application thereof to any person or situation is held invalid, such invalidity shall not affect any other provision or application of this rule which can be given effect without the invalid provision or application, and to this end the provisions of this rule are declared to be severable.

NOTE:Authority cited: Sections 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h), Insurance Code.

HISTORY

  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Editorial correction of Authority cite (Register 95, No. 42).
  3. Repealer of former section 2695.13 and renumbering of former section 2695.16 to new section 2695.13 filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.14 Effective Dates

  1. These regulations shall take effect one hundred and twenty (120) calendar days after they are filed with the Secretary of State. Any further amendments to the regulations shall take effect seventy-five (75) days after they are filed with the Secretary of State.
  2. Prior to the effective dates of the regulations and any amendments thereto, as set forth above in subsection 2695.14(a), licensees shall, pursuant to Section 2695.6, adopt and communicate to their insurance agents and claims agents standards for the prompt investigation and processing of claims, and provide training and instruction on the regulations and any amendments thereto.
  3. The regulations and any amendments thereto contained in this subchapter shall apply to all new claims submitted to an insurer or insurance agent and to any claims handling that takes place on or after the effective dates set forth under subsection 2695.14(a).
NOTE: Authority cited: Sections 790.10, 12921 and 12926, Insurance Code; and Section 11343.4, Government Code. Reference: Section 790.03(h), Insurance Code.

HISTORY

  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Renumbering and amendment of former section 2695.14 to new section 2695.12, and renumbering and amendment of former section 2695.17 to new section 2695.14 filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.15 Penalties

NOTE: Authority cited: Sections 790.035, 790.07, 790.08, 790.09, 790.10, 1872.4, 12340-12417, inclusive, 12921, 1065, 704, 780-784, 1011, 11690, 12926 and 12928.6, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(h), 790.035(a), 790.04, 790.05, 790.06, 790.08 and 790.10, Insurance Code.

HISTORY

  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Repealer filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.16 Severability

NOTE: Authority cited: Sections 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h), Insurance Code.

HISTORY

  1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).
  2. Renumbering of former section 2695.16 to new section 2695.13 filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

  2695.17 Effective Date

  1. These regulations shall take effect thirty calendar days after these regulations are filed with the Secretary of State in accordance with California Government Code Section 11346.2. Licensees shall have ninety calendar days from the effective date of these regulations to provide training and instruction regarding these regulations pursuant to Section 2695.6(c).
NOTE: Authority cited: Sections 790.10, 11346.2,12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h), Insurance Code.